Final-salary pension crisis grows

Sunday 26 May 2002 23:00 BST

ONE in ten firms has closed final-salary pension schemes to new members in the past year, a report reveals. Most claim they cannot afford to extend the scheme to new employees because staff are living longer and retiring earlier.

The revelation is made in the IRS Employment Review, an independent research body supplying information on issues such as pay, safety and hours. It will increase fears over the continuing demise of final-salary pensions and the need to safeguard future occupational schemes. And it will add to mounting concern that many people will be unable to rely on the pensions they had expected to provide for a comfortable retirement.

Many companies have disclosed that even for existing members they are to move away from schemes guaranteeing a retirement income based on final salary. Staff face being transferred to less generous money purchase schemes based on the fluctuating performance of the stock market, meaning workers have to save much more.

The trend is likely to continue, with one in four private companies ready to close their final-salary schemes to new members over the next two years, according to the Norwich Union. It said that a further 11% of firms are ready to totally axe such schemes.

The National Association of Pension Funds also warned that it expected an increasing number of schemes to be closed completely. A spokesman said: 'The trend is clearly accelerating. Worryingly, it is the big companies that are doing this, leaving thousands of employees facing a poor retirement.'

Supermarkets chain Safeway last week joined a long list of companies, including Lloyds TSB, Sainsbury's, ICI, Whitbread and BT that have decided to close schemes to new recruits while keeping them open for existing members.

The growing crisis has led to Work and Pensions Secretary Alistair Darling pledging to slash red tape surrounding saving for pensions. The Government had hoped its flagship stakeholder pensions scheme would encourage more people to put money aside for their old age. But more than half the schemes set up by employers have no members, while the remainder have just 5% of eligible staff signed up.